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Halftime: Is the Fed All Talk and No Action?

Monday, 18 Oct 2010 | 1:44 PM ET

Monetary policy. Quantitative easing. QE2.

Whatever you call it, the Federal Reserve has talked a lot lately about what action it may take to prop up the US economy.

That chatter, said Brian Kelly of Kanundrum Capital, may be all the Fed needs to do. By simply talking about monetary policy, the Fed may give investors the confidence they need and watch inflationary expectations rise to somewhere around 2 percent. So by the time their all-important November meeting comes around, they might not need to take any action at all.

If that's the case, the market should sell-off because monetary policy has already been priced in, said Stuart Frankel's Steve Grasso.

That's a risk, answered Kelly, but the Fed is going to be there to inspire confidence in the markets. So he would use any sell off as a buying opportunity.

The traders discussed the possibility of QE2 after Atlanta Fed President Dennis Lockhart said he's leaning in favor of monetary policy, even though it comes with some longer-term risks.

Watch the video to see the full conversation on QE2.

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TRADING OIL: SERVICES OR REFINERS?

Haliburton weighed on oil services stocks Monday, as the stock fell after missing on third-quarter earnings.

The problem, said CNBC's Melissa Lee, is that the whisper numbers going into the report only continue to climb. In other words, Wall Street's earnings per share forecast might not be attainable.

If the whisper number is expected to be more aggressive, you'll see it transcend through the stock price, noted Grasso. Haliburton was priced to perfection, he said, while Schlumberger is pricing in a miss and Weatherford is expected to beat. He thinks the oil services stocks are "a little pricey" and recommends going with the refiners and Sunoco in particular.

Zachary Karabell of RiverTwice Research still likes Schlumberger and would continue to buy the stock ahead of earnings Friday because it will be the "premier global player in this and not as exposed to land." Grasso said that makes sense if they're already pricing in a miss.

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CALL OF THE DAY: UBS UPGRADES AIG

UBS added AIG to its 'short-term buy' list Monday, recommending that investors get in now before the government converts its preferred shares to common shares.

Shortly after making the call, UBS analyst Andrew Kligerman explained his reasoning on "Halftime." He said weeks ago, investors thought AIG was a major sell because no one thought the government would give back any stake in the company. In contrast, they did a preferred to common version and AIG issued warrants. In turn, we get a much more attractive valuation and he doesn't think the investment community has figured that out yet. After evaluating the stock, he set a short-term price target of $45 and a 'short-term buy' rating.

Kligerman thinks the stock will rally once the government issues the warrants. Also, once people work through the valuation, they'll realize it's a strong company worth more than the current share price.

UBS Adds AIG to Short-Term Buy List
Andrew Kligerman, an analyst at UBS, tells the "Fast Money" crew that traders should get in on AIG before the government converts its preferred shares to common shares.

On the flip side, the government overhang is a concern. It owns 92 percent of the company and once they start offering shares, it could put pressure on the stock. But, he said, Citigroup didn't underform the financials once the government started offering C shares.

What's the Trade?

Kelly has stayed away from AIG. He thinks it's difficult to analyze, but recognized Kligerman's analysis. He said if you're going to buy it, sell it up 8 percent.

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CALL TO THE FLOOR: CME GROUP

Shares of CME Group popped Monday following the launch of its interest rate swap clearing platform.

CME Chairman on Clearing Interest Rate Swaps
Shares of the CME Group popped Monday morning on the launch of its interest rate swap clearing platform. Craig Donohue, chairman of the CME Group, the world's largest futures exchange, discusses the launch with the "Fast Money" traders.

To talk about the new platform, CEO Craig Donohue appeared on "Halftime."

Watch the video to see the full report—it starts at 1:15.

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CALL THE CLOSE

"Momentum is still with the bulls," said Grasso. "If you have to, buy yourself some protection, but stay long the market."

Options trader Brian Stutland is still long the market. He thinks the S&P could go above 1,200 and will buy on any dip. Karabell agreed.

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Kelly said 1,150 on the S&P is your floor. If it bounces off that, he's a buyer.

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Trader disclosure: On Oct.18, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Stutland is short (AAPL) puts; Stutland owns (BAC); Stutland owns (CME); Stutland owns (GS); Stuland owns (IBM) short calls; Stutland owns (MCD); Stutland is short (TOL), short put; Stutland owns (WFC) and (WFC) bonds; Karabell owns (AAPL), (C), (GOOG), (IBM); Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)
For Brian Kelly
Accounts managed by Kanundrum Capital own (GLD)
Accounts managed by Kanundrum Capital own (GDXJ)
Accounts managed by Kanundrum Capital own (TIP)
Accounts managed by Kanundrum Capital own (SLV)
Accounts managed by Kanundrum Capital own (REE)
Accounts managed by Kanundrum Capital own (MCP)
Accounts managed by Kanundrum Capital own (JEF)
Accounts managed by Kanundrum Capital own (UUP)
Accounts managed by Kanundrum Capital own the Swiss Franc
Accounts managed by Kanundrum Capital are short the UK Pound
Accounts managed by Kanundrum Capital are short the Mexican Peso
For Zach Karabell
River Twice Capital owns (HUN)
River Twice Capital owns (IBM)
River Twice Capital owns (GOOG)
River Twice Capital is short (SPY)
River Twice Capital is short (QQQQ)
For Steve Grasso:
Stuart Frankel & Co and it’s partners own (COG)
Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (OPEN)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (XRX)
Stuart Frankel & Co and it’s partners own (SDS)
Stuart Frankel & Co and it’s partners are short (QQQQ)
For Gene Munster
Piper Jaffray makes a market in (AAPL)
For Andrew Kligerman
A member of Kligerman’s team, or one of their household members, owns (AIG)
(AIG) within the past 12 months has been an investment-banking client of UBS
(AIG) within the past 12 months has been a non-investment banking securities-related services client of UBS
(AIG) is, or within the past 12 months has been a non-securities services client of UBS
Within the past 12 months, UBS Securities LLC has received compensation from (AIG)
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